A weekend article in The New York Times examined the ideological underpinnings of the bitcoin cryptocurrency. While the article got most of it correct, it missed some additional principles that are core to the adopters of bitcoin.
First of all, a vote for bitcoin is essentially a vote against the established monetary order with its centralized authority, legacy infrastructure, and diminishing financial privacy. Moreover, it is also a vote for an individual’s choice in currency and freedom of transaction without payment blockades and surveillance. To both the technical and non-technical, bitcoin represents fungibility, irreversibility, and user-defined privacy.
As The New York Times pointed out, additional facets that bitcoin adopters find attractive include how bitcoin demonstrates the absurdity of a central bank’s unlimited issuance model and the irrelevancy of self-serving capital controls.
A decentralized cryptocurrency separates a functioning medium of exchange from state control.
Nothing illustrates this more starkly than a physical bitcoin on a coin-shaped metal disc, which could be considered a negotiable monetary instrument in some jurisdictions. Lately, bitcoin has appreciated so much that the older 10 BTC and 25 BTC Casascius coins must now be declared to US Customs when entering or exiting the US.
FinCEN’s involvement
On November 27th, Casascius founder Mike Caldwell received a letter from FinCEN, the US Treasury bureau responsible for safeguarding the financial system from illicit use and combating money laundering. The letter implied that his three-year-old business of selling coin-shaped pieces of metal could be defined as a money services business requiring registration with FinCEN and possibly registration with the money transmitter regulators in each individual state.
The FinCEN claim rested largely on the premise that Caldwell had no way of verifying that the coins were being shipped to the same person, or persons, that purchased the items with bitcoin. Caldwell believes that the coins should be viewed as collectibles.
Subsequently, Caldwell suspended operations of his coin-shaped metal business and ceased taking orders for purchases of new product. He also engaged legal counsel to ascertain if his business was indeed acting as a money transmitter under the law.
In telephone conversations with Caldwell, he reiterated to me that the ongoing operation of his business was secondary to establishing the important freedom-to-contract principles and choice in currency principles. According to Caldwell, he took the drastic step to suspend as a precaution, however he does not believe that he is in violation of any existing laws as he is only sending empty private keys in the mail.
Business model
Under the current business model, Casascius receives an order and the payment received does not involve any US currency or any other countries’ currency. He accepts bitcoin for the sale of a round metal disc with a private key attached under a hologram. The strong reputation of Casascius and its process is paramount to the success of a physical bitcoin, because it involves trusting the integrity of a third party.
During shipment, the coin-shaped piece of metal is valueless and corresponds to a bitcoin address containing zero bitcoin. When the recipient receives the coin-shaped piece of metal, an appropriate amount of bitcoin is transferred to the corresponding public key, or bitcoin address.
In an alternate approach, Casascius could send the coin-shaped metal and allow the recipient to initiate the transfer of bitcoin to the corresponding bitcoin address, thereby removing Caldwell from handling the bitcoins at all. In that scenario, Caldwell would not be handling US dollars or bitcoin so it would be difficult to see how any possible money transmission was occurring.
Recalescence Coins, LLC in Port Orchard, WA has already moved to the model of selling blank coins as a result of the FinCEN letter received by Casascius.
Caldwell and his attorney plan on responding to the FinCEN letter, describing their process and outlining a satisfactory business model.
Casascius uses brass tokens in the shape of a coin. Another business based in the UK sells similar coins. Other companies could just as easily use rectangular plastic or special paper to store a hidden private key. They could even be divided, sent separately, and re-joined later to form a complete private key. However, the requirement to separate a private key would mean sending empty private keys in the mail somehow represents a form of money transmission which it does not.
Form factors
Also, form factors matter legally, or they should. Phil Zimmermann faced a somewhat similar situation when he could not export his email encryption program, Pretty Good Privacy (PGP), due to US restrictions on the exporting of encryption with “munitions-level” strength. A group of volunteers then transcribed the computer code line-by-line into a book format to export PGP as a book to be re-transcribed and compiled on the other side.
Money is the speech of commerce and “we need freedom of speech in our financial commerce,” says Mike Gogulski, a stateless ex-American living in Bratislava, Slovakia.
The Liberty Dollar case exemplified how far a government will go when alternatives to the compulsory unit of account begin to emerge. The Liberty silver coins containing real silver were embarrassing to the government that was issuing the fake silver coins, so the public had to be protected from thinking that the real silver coins were actually money. Huh? Government prosecutors in the case laughingly described Bernard von NotHaus as representing a “unique form of domestic terrorism“.
[post-quote]
All money is an illusion at some level, because like language and religion, its proliferation and success depends on growing adoption from an increasingly larger pool of adherents.
The creator of the Bitcoin protocol gave the world a method to conjure up its own monetary illusion. The reason this is a gift is because, prior to bitcoin, other monetary illusions depended either on legal tender laws for their illusory value or physical objects like gold and diamonds which are easily confiscated.
Bitcoin put the power of “survivable” money directly in the hands of the masses. It is a testament to bitcoin’s survivability that it still exists today.
Bitcoin is not permitted to exist because various governments are bitcoin-friendly or pledge to support innovation. Bitcoin exists today precisely because it is distributed and decentralized, designed to outlast political institutions. And, it is beyond confiscation because it is digital. If it could be eradicated, it would have been eradicated as soon as it broke out of its niche market with a few pizza deals back in early 2010.
I understand from sources that approximately twelve such letters were issued by FinCEN in the last 30 days. If so, the purpose hopefully is to better understand these bitcoin business models and not just to use impressive letterhead in persuading voluntary business suspensions. In the case of Casascius, I fear the latter.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
Follow author on Twitter.